Crass Capitalism

October 8, 2001

Dear Investor:

Some time ago, I went to hear the noted fund manager David Alger speak on the topic of growth investing. The crux of his speech was that markets, governed as they are by human psychology, have short memories. He highlighted the fact that markets always rebound favorably from savage shocks once the initial psychological trauma has passed. On his list of examples was the World Trade Center bombing of 1993. He explained that his offices were now high in the World Trade Center and the memory of that tragedy was still present in the building but long gone from global markets. Today David Alger is one of the missing 5,000 and his words deserve more than short memories.

If Mr. Alger were here, I think he would tell us to continue to invest in the future of global prosperity. I think he, in his British bankers’ pinstripes (that always evoked grand tradition and now are the unlikely uniform of a martyr) would say this not only out of patriotism but also out of the belief that it was the best investment. A true capitalist and skilled money manager, he would tell us which firm would turn a profit and, in so doing, would channel capital to those most deserving: biotech companies curing cancer, underwriters providing insurance, airlines flying families to be together. Say what you will about crass capitalism, but it builds buildings, it doesn’t knock them down.

Democratic capitalism underpins our nation. It’s the belief that freedom of choice should govern as well as allocate. It’s an imperfect system. But as the quote goes, it’s the best system we’ve got. Democratic capitalism will succeed over time, because it is the only political system that harnesses, rather than represses, human nature. In contrast are the various forms of totalitarianism, such as communism and fascism, which try to squelch human nature, and in so doing assure their own extinction. Democratic capitalism is based on a simple and elegant idea: that human beings, left to their own true and well-represented choice, will make the best decisions for the populace. The differences between liberals and conservatives are petty when dwarfed by the underlying common denominator of this democracy we all cherish.

At a conference this past week (moved to the Marriott Marquis in Times Square from its original planned location at the Marriott World Trade Center), Marty Whitman, the legendary investor and manager of the Third Avenue Value Fund, proclaimed that if there’s one type of person he hates, it’s the “true believer.” He said that the terrorists are good examples of true believers because they are sure they’re right. What’s more, they’re willing to kill in that belief.

These true believers are the grim and repugnant reapers of another “ism” that the world will now have to extinguish: fundamentalism. Like communism and fascism, fundamentalism attempts to suppress human nature. As a nation, we spent the first half of the 20th century defeating fascism. We spent the second half defeating communism. Now, no doubt, we are faced with a long and haunting battle against a new vicious ideology. Fundamentalism will not be extinguished in a New York minute. But the welcome reality is that it, too, as a form of totalitarianism, is doomed to fail. It sows the seeds of its own destruction in its attempt to control and repress. People can be beaten, lorded over, stomped into misery and pestilence. But they will eventually choose their own way. It may take years or decades, but they will do so. It’s the course of human history and it’s worth betting on.

Communism claimed that it could allocate resources. The result was chronic shortage, poor medical care, and hungry winters. Fascism claimed that it could organize institutions. The result was genocidal madness, unprecedented enslavement, and…hunger. Now Afghanistan’s Taliban claims it knows God and the result is sadistic brutality, wretched treatment of women, and…hunger. It seems there’s always one thing these true believers can hold out to their people: the promise of no warm meal on a cold December night. Again, say what you will about capitalism (a system which certainly does not succeed in feeding everyone it should), but it makes meals, it doesn’t guarantee their non-existence.

In the financial world, markets will recover, investments will bear fruit, and democratic capitalism will continue to build and rebuild. It will rebuild the new towers down in lower Manhattan. It will build the new medicines to fight the hazards of bio-terrorism. It will build the new technology to ensnare the mass murderers who roam the world with hollow stares and bloody hands. It will build the schools to educate children that true religion doesn’t condone killing. It will build the transport ships to bring grain to starving people worldwide. What other political system can claim that list of future accomplishments?

The spirit of David Alger is the spirit of this capitalism. The Alger Funds had a backup office in New Jersey that they had maintained for many years. The office had gone unused and some had commented that it might not be worth the rent and expense. Mr. Alger was said to have replied that it would be worth it someday. Like all capitalists, he was planning for contingencies in the name of profit. And by caring about profit, he was helping the world along. Say what you will about capitalism, but it puts people to work, it doesn’t put them under rubble.

We’re now at war. At this time, we can’t know Mr. Alger’s current investment predictions, but I think we can access their spirit. He would tell us to be long the US and global prosperity, to be short the Taliban and fundamentalism. Again, not only in the name of patriotism, but in the name of a good investment. And in the name of what will win, eventually.